Spending Cuts and Accounting Gimmicks

Three weeks ago, President Obama and Congress reached an agreement on the 2011 Federal budget. Keep in mind that the government’s fiscal year started on October 1, 2010. Thus, we were already more than six months into the year before they could reach an agreement of how to spend money for the current year. How they are able to do that is a different discussion.

After they reached an agreement on the 2011 budget, members of both sides of the aisle trumpeted their success in reducing Federal spending and moving towards more fiscal restraint. Even for those who wanted greater cuts, they conceded that it was a good start. According to the budget agreement, federal spending is will be reduced by $38 billion. This may seem like a lot of money, but keep it in perspective. This amount is approximately 1% of the total $3.5 trillion of federal spending for 2011 and less than 3% of the projected $1.4 trillion budget deficit. It’s a good start, but certainly not what you might consider draconian cuts.

The dirty little Washington secret is that a substantial portion of the $38 billion won’t actually reduce federal spending for programs or personnel. Check out this Washington Post article which reveals some of the maneuvers and gimmicks utilized to account for the cuts. Granted, there will be real cuts and reductions, “But some of the worst-sounding trims are not quite what they seem, and officials said they would not necessarily result in lost jobs or service cutbacks.” One example cited is the $4.9 billion for the Justice Department’s Crime Victims Fund. The money was allocated to a reserve fund that wasn’t going to be spent anyway, yet Congress counted it as part of their “spending cuts.”

Although it may seem like a rather trivial matter, it’s a good indication of how Washington works and the way our political leaders think and act. In Washington World, money you wanted to spend, could have spent, or even thought of spending all count as “spending cuts.”

If this were true, then I have cut millions of dollars from my spending… but it’s not real. It makes no difference to my bank account how much money I thought of spending or wanted to spend, but didn’t. It only counts if I don’t spend it, and it stays in my account. This is common sense to the rest of the world, but it seems elusive to Washington politicians.

Understanding Washington World and the political spin of politicians will be very important as Congress and the President wade into the battle over the 2012 budget, raising the debt ceiling and tackling the annual deficits and national debt. It’s in vogue to talk about spending cuts and deficit reduction, but there is often more to the story than what is being said.

This is an issue you should care about whether you support the current spending by the U.S. government or believe it needs to be dramatically reduced. To me, it’s an issue of honesty and integrity. Hopefully, this matters to you irrespective of your political affiliation or philosophy.